7.12.13: Scotiabank pulls plan to invest in state-owned Chinese bank

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Markets: By the numbers

Friday’s global markets’ close

Japan’s Nikkei
14,506.25 +33.67 +0.23%

China’s Shanghai2,039.49 -33.50 -1.62%

Hong Kong’s Hang Seng
21,277.28 -160.21 -0.75%

Australia’s S&P/ASX 200
4,973.90 +8.20 +0.17%

Bank of Nova Scotia said on Friday it has withdrawn its application to acquire a nearly 20% stake in Bank of Guangzhou, after Chinese authorities decided against proceeding with the $719 million deal. Scotiabank, Canada’s No. 3 lender, had warned in May that Chinese authorities were reevaluating whether they wanted to go ahead with the deal that was originally struck back in September 2011. Bank of Guangzhou is primarily government-owned and is not publicly listed. Guangzhou, with a population of around 13 million, is about 120 km (75 miles) northwest of Hong Kong. Scotiabank had said recent changes in municipal and federal leadership in China had prompted authorities there to rethink the deal.

Grocery giant Loblaw Cos. Ltd. is taking on Whole Foods in a test pilot of a new retail concept called Nutshell Live Life Well, a stand-alone franchise catering to the health-conscious crowd, reports the Financial Post‘s Hollie Shaw. The first location will open this fall in downtown Toronto, Loblaw company spokeswoman Julija Hunter confirmed on Thursday, and will include a broad assortment of prepared, fresh and packaged foods, a prescription pharmacy, natural health and beauty products, vitamins and supplements. Loblaw’s news comes a month after the CEO of Austin, Tex-based supermarket chain Whole Foods Market Inc., the world’s largest natural food retailer with nine stores in B.C. and Ontario, said it could open 40 or more Canadian locations as part of a bigger worldwide expansion. And Nutshell Live Life Well will make its debut in the midst of perhaps the most competitive year to date in Canadian grocery retail, in which all of the major players have seen their margins squeezed in a pricing war and the rapid expansion of grocery square footage from Walmart and Target. Loblaw’s most recent and significant new banner concept was the 2009 acquisition of B.C.-based Asian food retailer T&T Supermarket Inc. for $225-million.

JPMorgan Chase & Co reported a 31% rise in quarterly profit on Friday as trading revenue rebounded and the biggest U.S. bank by assets set aside less money to cover bad loans. Net income rose to $6.50 billion, or $1.60 per share, in the second quarter ended June 30 from $4.96 billion, or $1.21 per share, a year earlier. The year-earlier quarter included the vast majority of the losses of more than $6.2 billion on derivatives positions that were so large that hedge funds had referred to the trader handling them as the “London Whale”.

Wells Fargo is doing pretty well, too

Wells Fargo & Co, the biggest U.S. mortgage lender, reported a higher-than-expected 20% rise in quarterly profit on Friday as it set aside less money to cover bad loans. Analysts had expected earnings of 93 cents per share, according to Thomson Reuters I/B/E/S. This marked the 14th consecutive quarter of earnings growth per share. Provision for bad loans fell 64% to US$652 million. The rise in U.S. interest rates since early May contributed to a slowdown in refinancing, which accounted for 54% of Wells Fargo’s mortgage applications in the second quarter, down from nearly two-thirds in the first quarter.

$1M-plus home sales less impacted by mortgage rules

Ottawa’s tightened mortgage rules seem to have had less of an impact on high-end real estate than on the overall market, according to experts. “Most people who are going to buy a $3-million to $5-million house usually have access to the funds,” said Elli Davis, a sales representative with Royal LePage in Toronto. “They don’t really care if they pay a touch more.” In July 2012, Finance Minister Jim Flaherty made changes to Canada’s mortgage rules in a bid to cool down an overheated real estate market.These changes included reducing the maximum amortization period to 25 years from 30 for insured mortgages as well as limiting government-backed mortgage insurance to homes under $1-million, effectively increasing the down payment required on luxury homes.

Party on for stocks?

It’s being dubbed the Bernanke bump, and bump it was on Thursday, with U.S. stock markets rallying to new highs and the loonie making major gains against the greenback after the emergence of a more dovish tone from the U.S. Federal Reserve, reports the Financial Post‘s John Shmuel. That tone made it clear to investors that while the Fed’s US$85-billion a month asset buying program might come to an end this year, the accommodative monetary policy currently in place is unlikely to end anytime soon. “[The Fed] “has turned tapering speculation completely on its head overnight,” said Colin Cieszynski, senior market analyst at CMC Markets Canada. Fed Chairman Ben Bernanke appeared to realize how much his comments last month had spooked markets, because he offered plenty of reassurances Wednesday that the Fed will lean on easy-money policies for a long time to come. Key, of course, is whether the party will continue, particularly with still-murky news emanating from China and other parts of the world, and with earnings announcements due out over the next few weeks.

Even as the town of Lac-Mégantic picks up the pieces after a fatal disaster involving oil-laden trains, there are few signs the crude-by-rail expansion will start to slow. In fact, rail is finding new pockets of opportunities and may even facilitate the transfer of Canadian crude to Asian markets – if regulations allow, reports the Financial Post‘s Yadullah Hussain. Nearly a dozen plans to accelerate oil shipments via rail to the North West U.S. are focused on sourcing North Dakota and Alberta oil shipments to a string of refineries dotted along or near the U.S. western coastline, according to a report by Seattle-based Sightline Institute. “In Oregon and Washington, 11 refineries and port terminals are planning, building, or already operating oil-by-rail shipments,” Eric de Place, an analyst with Sightline Institute, said in an interview. “The projects are designed to transport fuel from the Bakken oil formation in North Dakota, but the infrastructure could also be used to export Canadian tar sands oil.”

Bloomberg’s Jennifer Ryan reports on the U.K. housing market and the impact of real estate in London. Watch the segment below.

Swim or sink for Microsoft

A rising tide of tablets and smartphones is washing away PC sales and the aging titans of the industry are scrabbling to stay afloat — chief among them Microsoft Corp., reports the Financial Post‘s Matthew Braga. For decades the biggest name in software on the planet, Microsoft dominated the market with its ubiquitous Windows operating system — designed specifically for desktop and laptop PCs, which were then by far the predominate consumer computing platform. But that has changed dramatically over the last few years and the PC is losing ground fast. Chief executive Steve Ballmer believes a massive restructuring plan is just what the software giant needs to salve both its competitive and innovative woes. The move, announced Thursday, will see the company’s eight existing product engineering divisions consolidated into just four, broader pillars – operating systems, applications and services, cloud and enterprise, and devices and studios. The new, lithe organizational structure is intended to bring clarity to a company that has long been criticized for its seeming inability to adapt to and anticipate trends in consumer technology, and is part of Mr. Ballmer’s new vision for Microsoft as a devices and services company.

Like most of the rest of us, Cogeco Cable Inc. is trying to be a little more fiscally responsible – spend less and pay down some of its debt. Indeed, the cable operator may get a little bigger over the next year but it does not plan on making any major acquisitions as it focuses on paying down its debt after two recent large buys, reports the Financial Post’s Christine Dobby. Louis Audet, president and chief executive of the Quebec cable and Internet provider, said Thursday that rosy free cash flow projections won’t knock the company off course when it comes to its focus on deleveraging its balance sheet. It agreed to buy Vancouver-based data-hosting provider PEER 1 Networks for $526-million last December and acquired U.S. cable and Internet carrier Atlantic Broadband for $1.36-billion last summer. During a conference call after the company announced third-quarter results, Mr. Audet said Cogeco would consider further “tuck-in” acquisitions as smaller cable operators become available. “But by and large I don’t think any of these will make a meaningful difference on what we are presenting today for 2013 nor for 2014 because … they would in principle be sufficiently small so as not to modify our trajectory toward debt reduction,” he said.

Don’t look now but another emerging markets crisis may be in the works. Indeed, the recent turbulence in emerging markets appears to be the result of more than just tapering risk courtesy of the Federal Reserve, reports the Financial Post‘s Jonathan Ratner. As the IMF trimmed its 2013 global growth forecast to 3.1% from 3.3% (and to 3.8% from 4% for 2014) on Wednesday, its chief economist, Olivier Blanchard, also warned emerging markets face cyclical and structural problems. As Canaccord Genuity portfolio strategist Martin Roberge put it, “after years of strong growth, BRICs are beginning to run into speedbumps.” He believes the IMF’s comments confirm uneasy sentiment among investors that emerging market economies are slowing down too fast, with the risk of spurring a full-blown crisis later this year or in 2014. “Since the 2001-02 recession, EM debt has been a major source for global investors in search for higher yield and growth,” Mr. Roberge said in a research note. “But now that the Chinese economy, the main source for EM growth, is slowing down and causing ripple effects in other EMs, there is an exodus from EM debt/equities which is being exacerbated by the Fed (tapering QE) and BOJ (“Abenomics”) actions.”

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